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Tax Reductions

One of the issues causing further discussions is how should is more suitable to stimulate the economy, whether through public spending or tax cuts. Depending on the political orientation you opt for one or another option, but what are the pros and cons? Both policies represent the so-called fiscal policy alternatives, through which the Government intervenes to trying to stimulate the economy. They would be in that political sense counter-cyclical, as they try to fight against what is happening. In principle, in both cases assume an increase of public deficits, either by increasing spending in the first case, or by the reduction of revenues in the second. Although in certain circumstances, according to economist Arthur Laffer, you could arrive to tax reduction occurred an increase in tax revenue, because there would be more people working, and even less fraud Prosecutor, not to be so high taxes, it is not at all proven. Although it is possible to produce certain compensation, in the era of Ronald Reagan, who made his leitmotif, the collection of the income tax for the lowering of taxes dropped considerably, despite the increase of income, giving rise to large deficits.

Therefore, the effects can be similar, and its use may depend on circumstances and political color of the current Government. Thus, public spending policies are more characteristic of left-wing governments (Obama came you to be called Socialist), that they are a more direct intervention of the State in the economy, while tax cuts, well individuals (looking for stimulating consumption and labour), or companies (trying to spur the economy from private enterprise) are more characteristic of right-wing governments. Policy of public spending is, as already said Keynes, state influence on aggregate demand through public works, for example. In this way, generates employment and wealth, and in addition, part of this wealth in turn spends in other things the so-called multiplier effect, whereby if the Government invests, for example 100.